Construction in the capital’s Tonle Bassac commune on Thursday. Heng Chivoan
Cambodia's economy is predicted to remain resilient and maintain a high growth rate this year in the face of challenges posed by the global economy, according to a National Bank of Cambodia (NBC) press release.
The NBC press release stated that it expects the economy to grow by seven per cent this year, while monetary risks remain manageable given Cambodia’s low 2.6 per cent inflation rate.
In addition, exchange rates remain stable at 4,050 riel to the US dollar and international currency reserves sit at $11.3 billion, enough to guarantee five months of imports.
“Credit in the Cambodian banking sector is expected to accelerate to 17.1 per cent [this year] and financial inclusion will continuously grow, boosting economic activity and reducing the poverty rate,” the NBC release said.
Risks from the external sector – the proportion of the Cambodian economy that interacts with foreign markets – will remain low as the global economy strengthened and world trade picked up.
The current trade war between the US and China could force investment relocation, but the NBC projects that this could attract more investment in the manufacturing and agriculture sectors as the Kingdom can access many key markets duty-free.
However, the NBC expressed concern over the higher costs of Cambodian financial institutions borrowing funds from abroad, as developed countries – especially the US – have a high benchmark interest rate which will pull capital back to these countries.
“If this happens [Cambodian financial institutions borrowing funds from abroad], it will lower capital inflow to developing countries like Cambodia as it’s only available at a higher interest rate,” the NBC said.
Cambodia’s biggest export market, the EU, warned last October that the Kingdom could lose its Everything But Arms (EBA) import preferences with the world’s largest trading bloc after allegations that democratic freedoms have receded.
The EU’s warning, the NBC says, is a risk factor impacting the Kingdom’s economic growth.
Acleda Bank Plc president and group managing director In Channy said Cambodia’s economy has diversified beyond textiles to electronics, vehicle spare parts and the service sector. He said these changes have led to stronger confidence in Cambodia’s economic growth forecast.
According to Channy, the Kingdom has a good monetary policy in place, which has supported a stable average annual economic growth rate of 7.6 per cent over the past two decades. He said inflation had remained stable as a result of a steady exchange rate over the past decade.
“Cambodia’s sovereign credit rating got upgraded by one mark due to stable economic growth. The upgrade will bring more confidence for investors in both debt and equity investment in Cambodia’s market,” he said.
He said the NBC has put in place all necessary regulations to safeguard the financial sector, with banks and financial institutions required to strictly comply with safeguards intended to mitigate sectoral risk.
Prasac Microfinance Institution Ltd senior vice-president Say Sony said the Cambodian microfinance sector is expected to maintain its healthy growth this year in line with the projected seven per cent GDP.
He said Prasac’s credit growth alone is expected to reach 20 per cent this year.
While the possibility of an EBA withdrawal and a decreased ability to borrow funds from abroad remain risky, Sony said any impact this will have on the Cambodian microfinance sector will be manageable as operators have prior experience with economic slowdowns, as well as the 2008 Asian financial crisis.
“Existing lenders have been committed to renewing and ready to disburse new loans to us since last year. Our depositors are especially happy to entrust their money to us because of high returns and [consumer] confidence,” he said.
